AMD Fabrication Spin-Off: The Big Players

Though there are over a dozen businesses and regulatory groups with a say in the development of The Foundry Company, here are the driving forces: AMD, along with Mubadala and ATIC, two investment firms wholly owned by the Abu Dhabi Emirate.

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Advanced Micro Devices (AMD)

Our previous two articles looked at why AMD would want to not directly own its fabrication assets, so we’re not going to go too far into that here. In short, it is very expensive to operate semiconductor manufacturing lines, hard to increase their capacity, and incredibly expensive to move to a smaller process (e.g: 60nm to 45nm). As demand for AMD products changes, they can either have unused capacity (fab lines with nothing to do) or not enough capacity (can’t make as many parts as they can sell). Doing this in the same market as larger competitor Intel, leaves little room for error.

By spinning off their fabrication assets into something they are (for the time being) calling The Foundry Company, AMD can focus on designing products while not only getting, but freeing up a whack of cash with which to do so. That isn’t to say they are turning their back on the manufacturing industry: AMD will own just over 44% (this just in: make that 34.2%, more details about the deal in the next article) of the new company money-wise, and half of it voting wise. The Foundry Company (which I will just call TFC, with apologies to my fellow Toronto Football Club supporters) will be a consolidated subsidiary, meaning whatever happens to it, happens to AMD, but AMD only feels 34% of it.

The advantage isn’t just that AMD is sharing the risk and expenses with other investors (Mubadala and ATIC, more on them below) but that much like AMD can now focus on designing products, TFC will have separate management and employees focused on manufacturing not just AMD parts, but offering contract foundry services to other semiconductor designers. TFC will have the opportunity to grow, even if AMD demand is flat, by making chips for customers in all kinds of tech industries, from cheap toys to high-end medical equipment. And 34% of that business could help see AMD through periods where their own chips aren’t doing too well.

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From Oil to Semiconductors

There are two businesses from the Emirate of Abu Dhabi, far and away the largest and wealthiest of the United Arab Emirates; Mubadala and ATIC (the Advanced Technology Investment Company). They have very different roles in The Foundry Company, but are both wholly owned by the Abu Dhabi government, a hereditary monarchy. Abu Dhabi is sitting on about 9% of the world’s accessible oil reserves.

The relationships, both within the ruling Al Nahyan family, as well as between the rulers and people of Abu Dhabi, along with the UAEs recent history and almost sudden appearance in the international financial community (at least outside of the oil industry) are absolutely fascinating. Obviously, there is enough here for 1000s of pages (for an introduction to current cultural and political issues in the UAE, read Judith Miller’s article Abu Dhabi: East Leans West, at City Journal), but you came here to learn about the AMD spin-off. We focus on Mubadala, ATIC, and their roles in developing TFC in the next article.